Not Getting What They Deserve: CEO Pay in the Wake of the Financial Crisis

By now it's no secret that CEO pay doesn't necessarily reflect actual competence.

But an eye-opening recent study by the Institute for Policy Studies was able to put a number on it. The study looked at the top 25 highest-paid CEOs for each of the last 20 years, and calculated the percentage who had been "bailed out, booted out or busted" — that is, those whose firms required a bailout from the government or went belly up, who were forced out of their job or whose firms had to pay large fraud-related settlements or fines.

What would you expect the inept CEOs' share of the highest earners to be? 15 percent? 20 percent? Maybe even 25 percent?

The answer is 38 percent.

If you weren't fully convinced that the reward system in today's corporate culture is deeply, deeply troubled, that figure should dispel all doubts.

On a similar note, I was rereading Michael Lewis's The Big Short recently, and have also been thinking about his classic Liar's Poker. Both books are about investment banking management that is, at times, quite incompetent, and that is in many ways antagonistic to its customers. Management at the highest levels of the banking system appear more interested in separating customers from their money than from providing a service to them.

So how does this happen? Why would we, as a society, put up with a corporate culture that is not just incompetent, but that often preys on the people it should be serving?

The answer is simple: Since the early 1990s, the Dow Jones Industrial Average is up over 500 percent.

These investment bankers and rotten CEOs have overseen a stock market that has performed wonderfully for investors, more so than at any other time in U.S. history.

No matter how incompetent a CEO may be when it comes to managing a business, it all comes down to the stock price. If it's going up, that's a great CEO. If it's going down, that's a bad CEO.

Of course, judging CEOs based on stock valuation is fine — as long as you're not in a bubble. But we are in a bubble. The problem comes when the bubble pops, and we're looking for competent people to run these companies in difficult times. We are encouraging and fostering a level of incompetence and outright dishonesty in our corporate leadership and banking community that is not good for the future.

So how do we expect to find the good CEOs and bankers when we really need them?
It will be tough.